ObamaNet vs EuroNet -- “Competing” Protectionist Industrial Policies

The US-EU “competition” of protectionist digital industrial policies -- U.S. Title II net neutrality vs. the EU’s emerging “platform neutrality” plans -- creates an ironic backdrop to negotiations for the US-EU Transatlantic Trade and Investment Partnership (TTIP) “free” trade agreement. Heightening the irony, the Obama Administration, not the European Commission, has been the protectionist digital industrial policy leader, trailblazing the political path for the EU’s Single Digital Market to follow.

At least on the digital markets front, TTIP will be much less a commercial “free” trade negotiation and much more a political “fair” trade negotiation.

The U.S. has long set the tone and trajectory for this digital “fair” trade dynamic in championing net neutrality to protect its Silicon Valley national champions, Google, Facebook, Amazon, Apple, Netflix, etc., and by skewing antitrust enforcement to benefit Google and Silicon Valley.

Last November, President Obama publicly triggered this protectionist digital industrial policy “competition” dynamic by publicly urging the FCC to mandate the “the strongest possible” telephone utility regulations for the Internet, which the FCC dutifully did February 26th with maximal fanfare.

To protect Silicon Valley commercial interests domestically, the ObamaNet industrial policy effectively has reversed twenty years of U.S. led, global Internet free trade policy. The EU and other countries are embracing the political cover of this American digital protectionism to impose new laws and regulations to advance and protect their sovereign interests.

While U.S. proponents have politically framed net neutrality as non-commercial, that couldn’t be further from the truth. In the trade context, net neutrality is all about who pays, i.e. who enjoys a rigged trade surplus or trade deficit.

The essence of the FCC’s net neutrality policy is to permanently mandate a zero price for Silicon Valley’s downstream Internet traffic. This protectionist policy creates a multi-billion dollar implicit subsidy system for the Silicon Valley cartel interests that have leveraged the artificial benefit of zero distribution cost to dominate over 90% of the Internet’s downstream traffic in the U.S. and Europe.

The EU and other sovereign nations know they can never hope to develop their own national digital sectors as long as they continue to massively subsidize Silicon Valley with a one-sided, U.S. definition of net-neutrality, that mandates a receiving-party-pays economic model where their countries and their consumers subsidize Silicon Valley’s distribution costs at the expense of their domestic competitors and consumers.

President Obama’s call for the “strongest possible” telecommunications monopoly rules for the Internet enable the EU and other countries to define net neutrality nationalistically as well and impose a telecommunications sending-party-pays model on Internet traffic, that would level the competitive playing field to maximize their own national economic interests and development.

In addition to the FCC skewing net neutrality policy to pick winners (Google and Silicon Valley) and losers (broadband providers), the U.S. has also skewed antitrust enforcement in favor of Google’s and Silicon Valley’s interests.

The Obama Administration has made its antitrust favoritism toward Google and Silicon Valley interests apparent.

In apparent violation of ethics policies that require the avoidance of the appearance of conflict of interest, the Obama Administration appointed two former Google outside antitrust counsels that represented Google before the Obama DOJ and FTC on antitrust matters, Renata Hesse and David Gelfand, to be two of the five Deputy Assistant Attorney Generals for antitrust. In addition, it appointed a Google consultant to be a Federal Trade Commissioner, Joshua Wright. The appearance of antitrust favoritism is clear.

In 2013, the FTC dropped its search bias investigation despite a staff report finding that Google manipulated its search results to favor its own content over others, and despite Google’s ~70% market share, i.e. “gatekeeper” power in the U.S.

This week, former Google outside antitrust counsel, and now DOJ decider Ms. Renata Hesse and the FCC effectively blocked the proposed Comcast-Time Warner Cable merger by contriving highly-artificial broadband market definitions, since Comcast and Time Warner Cable are not broadband competitors.

In 2011, former Google outside antitrust counsel, and now DOJ decider Ms. Renata Hesse and the FCC also blocked the proposed AT&T-T-Mobile merger, by breaking antitrust precedent and requiring four competitors in a high-fixed cost market rather than the three high-fixed-cost market-competitor precedent of the past.

In sum, the Obama Administration industrial policy to powerfully advantage Google and Silicon Valley interests at the expense of other U.S. communications interests and consumers, leads by example and provides huge political cover for Europe and other countries around the globe to put their sovereign interests ahead of global free trade interests going forward.

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.